4 Reasons E-Commerce Is Set To Boom In India

E-Commerce is one of the most exciting spaces for today’s global online community, and India’s young startup economy is along for the ride. In the less than three months of 2011, Indian VCs have already invested over $50 million in seven e-commerce companies, a 400 per cent increase over the same period just last year.

However, e-commerce in India has a long road ahead, and e-commerce infrastructure and best practices are in their infancy. India’s 7 to 9 per cent Internet penetration lags far behind the 30 to 40 per cent China and Brazil enjoy, and while India’s estimated 100 million Internet users still comprise the third largest online population, the total Indian e-commerce market was approximately 3 per cent of the U.S. market last year ($6.7 billion versus $227.6 billion).

Within these great challenges lie great opportunities, and the maturation of India’s e-commerce ecosystem is no different. A recent report by the Internet and Mobile Association of India reveals that India’a e-commerce market is growing at an average rate of 70 per cent annually, and has grown over 500 per cent in the past three years alone. Here are four reasons that e-commerce is set to boom in India, after years of false starts:

1. Critical mass of Internet users: With more than 100 million Internet users, the country is beginning to achieve a critical mass of users who are familiar with web services. In addition, over the past few years, relatively sophisticated online travel agents (“OTAs”), such as MakeMyTrip – which started turning these initial Web users into Web consumers – have dominated Indian e-commerce. While these OTAs have accounted for up to 80 per cent of Indian e-commerce in the past, industry giants such as eBay and the new crop of e-tailers expect to participate more heavily in this conversion of Web users to Web consumers, with an estimated 70 per cent growth in Indian e-commerce for 2011.

2. Rising middle class with disposable income: Throughout India’s short history, the country has been a land of “haves” and “have-nots”. However, with the rise of small and medium enterprises, foreign direct investment, and India’s own powerful multinational corporations creating millions of new jobs, a new generation of globally-minded Indian consumers has been created. These consumers are spread across the country. Furthermore, access to many global and domestic brands is limited to major metropolitan regions, such as Delhi, Mumbai, and Bangalore. Therefore, this growing middle class is increasingly turning to e-commerce as the primary outlet for sophisticated consumer products and services.

3. Payment gateways & logistics: One of the largest challenges to e-commerce in India is the lack of infrastructure to support new businesses. Logistics companies have been notoriously unreliable, and complex interstate regulations mean that interstate logistics and paperwork is more like international customs. Additionally, Indians have an aversion to credit cards – only an estimated 2 per cent of the nation has a credit card. However, the new breed of domestic logistics companies recognise the importance of reliable delivery and technology investment, and a number of new payment gateway companies such as CC Avenue have sprung up to service the growing e-commerce ecosystem. Alternative payment methods such as netbanking and cash on delivery are now mandatory offerings for leading e-commerce platforms and can drive as much as 75 per cent or more of transactions, and sophisticated technical integrations make the experience seamless.

4. User Experience: Of course, the primary driver for e-commerce anywhere is the user experience. Customers prefer a trusted relationship with an e-commerce brand, and the conveniences and reliability of e-commerce businesses have to outweigh the benefits of traditional retail outlets. Because there have been a relatively small number of successful consumer Internet companies in India, there has been less competitive pressure to force implementation of global best practices. However, as the number of e-commerce companies has grown, companies have started to place more emphasis on investing in the user experience. Best practices that have driven e-commerce globally are now a key focus of successful Internet companies, including merchandising, customer service, user interface design, and guaranteed delivery and return policy. In this competitive drive to differentiate via user experience, the ultimate winner is the Indian online consumer.

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